Big Four slammed for acting against the interests of shareholders

The 'Big Four’ audit firms will on Friday be accused of a serious breach in
alignment with shareholder interests as the Competition Commission reveals
the findings of its landmark investigation into their dominance.

KPMG, one of the Big Four auditors along with PwC, Deliotte and Ernst & YoungPhoto: Paul Grover

The wachdog, which will publish its report on Friday, will chastise PwC, Ernst & Young, Deloitte and KPMG, for a deep “misalignment” with shareholder interests. The Commission will make clear that auditors are accountable to shareholders first and foremost, but will claim that in many instances, auditors and company executives have acted as a cabal to their mutual benefit, and to the exclusion of the interests of investors.

The investigation will claim that the relationship between auditors and management has been too cozy and needs to be overhauled.

As part of its remedy, the Commission will demand auditors work harder to create transparency and openness with shareholders. Shareholders could become more involved in choosing auditors, who could be asked to give presentations at company annual meetings.

Other remedies outlined by the regulator will include mandatory rotation and tendering, which means that firms will have to step down as auditor after a fixed period of time and companies will be forced to ask new auditors to compete for business.

Although the four firms have dodged an out and out break-up, the remedies, along with the language of the report, are likely to cause waves in the industry.

The Big Four audit almost 90pc of all blue chip companies and according to a House of Lords investigation, listed companies use the same accountant for an average of 48 years. The auditors, who dispute this figure, were heavily criticised for failing to raise the alarm in the lead up to the financial crisis.

European regulators have also been working on plans to radically reform the audit landscape. However, it appears calls for the most sweeping reforms, such as separating audit and non-audit practices or imposing limits on market share, have been ignored.

The Commission will hold a four-month consultation to discuss the proposed remedies.